Cloud computing: what it is and how it works. A primer for investment managers with a lexicon of cloud terminology

Transcription

1 Cloud computing: what it is and how it works A primer for investment managers with a lexicon of cloud terminology

2 2 Cloud Computing: What it is and How it Works ClouÉ Asset managers have been slower than other kinds of businesses to move to the cloud, but that situation is rapidly changing. This communication is provided by Advent Software, Inc. ( Advent ) for informational purposes only and should not be construed as or relied on in lieu of, and does not constitute, legal advice on any matter whatsoever discussed herein. Advent shall have no liability in connection with this communication or any reliance thereon.

3 3 Hype or Reality? Not exactly sure what cloud computing means? You re not alone. Nowadays the phrase cloud computing seems to be popping up everywhere in advertisements for both business and consumer tech products, in the press, and on the lips of people eager to show that they re up on the latest thing. The subject, however, is clouded so to speak by a lot of technical terminology and marketing hype. Financial professionals who are not also IT experts or computer enthusiasts can easily and understandably be confused or put off by the jargon. Underneath all the hype and jargon, however cloud computing while it comes in a large and growing number of flavors is a fairly simple and powerful idea. It is a way to manage data (and software) that is extremely flexible, scalable and economical. For asset managers, cloud computing provides tools allowing them to handle all kinds of tasks, including managing client accounts, more easily and cheaply, thereby freeing up resources. It is also the coming wave in IT. Asset managers have been slower than other kinds of businesses to move to the cloud, but that situation is rapidly changing as vendor offerings proliferate and investment professionals become more comfortable with the concept. This paper will introduce and explain the essential principles of cloud computing for investment managers. It is not intended to be the last word on the subject, but rather a primer for the nonexpert who keeps hearing that cloud computing is the future (which it is) and wants to be prepared. We ll explain what cloud computing is, describe the different forms it comes in, identify the key ways it can be useful to investment managers, and map out the most common concerns and pitfalls of moving to the cloud. The idea is to equip you with basic concepts you need to start asking informed questions of IT staff and vendors, and ultimately to empower you to choose cloud computing solutions that make the most sense for your business. What Is Cloud Computing? At its most fundamental, cloud computing simply means outsourcing your computing operations. Instead of having employees connected to a server on site, which your company owns and maintains, they are connected to an off-site server owned and maintained by a computing services company. That arrangement, as we ll see below, can take many different forms, but they all share the same basic and powerful business logic. Many businesses that invest in servers wind up buying much more computing

4 4 Cloud Computing: What it is and How it Works Many financial firms have hesitated to embrace the cloud so far because of the twin concerns of data security and lack of control. muscle than they actually need on a dayto-day basis. Thus, it makes sense for businesses to purchase only the computing services they actually use from vendors instead of buying their own servers and software not to mention employing large IT staffs to maintain them. A familiar analogy that may help here is satellite television: by subscribing to satellite TV you get access to a broad array of programming, and you can pick and choose the programs or bundles that meet your interests. Love tennis? Add the sports package. Want to brush up your foreign language skills? Add an international channel. Don t feel like going out tonight? Watch a pay-per-view movie for a one-time fee. Besides greater choice, you don t have to keep the system running or wire up your house; it s all done for you. And you can discontinue services when you no longer need them or want to cut back on expenses. The fastest growing of the several varieties of cloud computing is also the easiest to understand: Software as a Service or SaaS. (See page 11 for a lexicon of cloud computing terms.) The best known example is Salesforce. Instead of licensing copies of Salesforce s customer relationship management [CRM] sales and lead generation software and installing it on their own servers, customers connect to Salesforce s servers and use its programs and databases via the Internet. As with phone, cable or utility service, SaaS customers pay on a per-usage, subscription basis that is, they pay only for the computing power they actually use. Connect to the vendor and the meter starts running; disconnect and it stops. The customer doesn t have to bother with any upkeep: no daily maintenance, no software upgrades, and no large IT department. Advantages of Working in the Cloud The appeal of moving to the cloud is obvious: ease of use and lower cost, as well as a high degree of scalability. The advantages of cloud computing are perhaps most dramatic for small or young businesses who are still sizing their computing needs and are less able to make the large upfront capital expenditures that big firms do on servers, bespoke software, and IT staffs. For example, a small company that has computing demands that it can handle in-house most of the time can go to the cloud for extra capacity when things get busy. Similarly, a growing company can have access to more computing muscle as it s needed say, to meet peak capacity periods or activities without having to make large capital expenditures on servers and the real estate to house them. The cloud provides dynamic, scalable access to the right amount of computing power neither too much nor too little. Being able to tap into services on demand is the main rationale for cloud computing. In a post-financial crisis world in which economic growth is likely to remain slow and budgets tight for a long time to come, saving money on IT will only grow in importance. The increased reporting and compliance burden on financial services companies from post-crisis regulation (e.g., hedge fund registration or increased record-keeping and reporting requirements for derivatives) will also put additional pressures on operating budgets that cloud solutions can help ease.

5 The appeal of moving to the cloud is obvious: ease of use and lower cost, as well as a high degree of scalability. 5

6 6 Cloud Computing: What it is and How it Works The advantage of cloud computing is a more dynamic, agile, cost-effective way to utilize Software as a Service. Financial services companies need to know not only that they will have access to data whenever they need it, but also that outsiders will be kept out.

7 7 Advantages of Cloud Computing > Server and system maintenance > Automatic software updates > Pay-as-You-Go pricing > Access services dynamically > Built-in data backup > Disaster recovery and business continuity Doubters Become Believers Many financial firms have hesitated to embrace the cloud so far because of the twin concerns of data security and lack of control. Anything touching clients or client data, naturally, is to be handled with extreme care. Some cloud computing providers have fallen victim to hacking and data theft or suffered outages that left their customers without service. Either of these scenarios would be enough of a nightmare if it affected, say, an asset manager s HR department. But if client accounts or data were involved, the damage to the firm s reputation could be deadly. Largely for those reasons, cloud computing is still a fairly small fraction of total IT spending, but it is growing fast. This year financial services research firm TowerGroup forecast that global spending on cloud computing will grow to $27 billion by the end of 2015 (from $4 billion in 2010), although that sizeable sum will still represent only about 6 percent of total IT spending. The cloud has demonstrated the ability to make believers out of doubters. Three years ago at a customer conference, Larry Ellison of Oracle, whose enormous and enormously profitable business was built on selling hardware and software, openly sneered at the very idea of cloud computing. Maybe I m an idiot, Ellison said, but I have no idea what anyone is talking about. What is it? It s complete gibberish. It s insane. When is this idiocy going to stop? Today, however, Ellison and Oracle are heavily committed to cloud computing, not only through investments in companies focusing on the cloud among them cloud computing evangelist Salesforce but also in Oracle s reorientation of its own business to the cloud. How Does Cloud Computing Work? Like clouds themselves, the term cloud computing is inherently intangible and changeable. It can be used to describe a large number of possible network arrangements and an almost unlimited number of custom set-ups. Hence, the confusion that arises when discussing cloud solutions. The blizzard of advertising, magazine articles and consultant s reports about cloud computing have also produced a daunting lexicon of terms and acronyms: ASP, outsourcing, SaaS, IaaS, and so forth. There are, however, several basic varieties of cloud computing that can be usefully grouped by: > What they provide in terms of service to the end user > How they are structured One thing that cloud computing is not, by the way, is the simultaneous use of multiple computers to complete a very large or complex computing task, with each computer taking a small piece of the overall job. Beginners can be forgiven the confusion: the word cloud, of course, suggests something being dispersed or disembodied. Breaking a computing task into separate pieces, common in the hard sciences like particle physics and weather forecasting but not in business, is more properly called distributed computing or grid computing.

8 8 Cloud Computing: What it is and How it Works Like clouds themselves, the term cloud computing is inherently intangible and changeable. It can be used to describe a large number of possible network arrangements and an almost unlimited number of custom set-ups. Services: What You Can Buy Via the Cloud SaaS or Software as a Service is what most nonexperts are referring to when they talk about cloud computing, and is the aspect of the cloud most relevant to financial professionals. An off-site vendor sells access to its software and servers via the Internet to clients who, instead of licensing a physical copy of the software, pay on a pay-as-you-go basis. Think of it as a kind of computing buffet, where you can take as much or little as you like and are charged only for what you eat. The related term IaaS stands for Infrastructure as a Service and means the vendor sells more technical computer services things like data storage or networking resources on a pay-as-you-go basis over the web. In contrast, PaaS Platform as a Service means the vendor sells access to hardware and software tools to developers, so they can write their own programs. Structures: Public vs. Private Clouds Different cloud computing structures offer different degrees of exclusivity and security to clients. Basically, the difference is between sharing a cloud computing server with other clients, having one strictly to yourself, or some combination of both. In the public cloud, multiple users work simultaneously on a single server. Their data and activity remains completely separate and private. Generally, users connect to the public cloud via the Internet. By contrast, a private cloud computing system is one that is used only by one client and is maintained and operated either by the client itself or by an outside vendor. This arrangement provides arguably greater security than public cloud computing but at a decidedly higher cost. For that reason, some purists contend that this is not strictly speaking cloud computing at all. For security reasons, private clouds have proven the most popular with large firms. Users can be connected to private clouds via secure, dedicated cable connections, rather than the public Internet, which can be susceptible to snooping and data theft. There are several different variants of this concept community clouds, hybrid clouds, shared clouds but basically they are all arrangements in which some computing resources are shared with multiple clients and some are exclusive to individual clients. Avoiding Dark Clouds: Four Things to Watch Out For There are four key issues that financial service companies need to consider before they migrate their computing functions to the cloud: accessibility, security, compliance, and the lack of standards and best practices. > The first is access. Signing up with a cloud computing vendor means outsourcing critical functions i.e., putting your data entirely in the hands of a third party. Many, perhaps most, financial services companies today are unwilling to take that step with confidential client information. Major cloud providers have had widely publicized outages that left clients temporarily without access to software

9 The benefits of a cloud computing environment are many simplicity, cost savings, flexibility and scalability. 9

10 10 Cloud Computing: What it is and How it Works The shape of things to come or data. No brokerage, asset manager, or family office would ever want to find themselves in that situation with account or trading information. Less sensitive functions administrative tasks, HR and so on are a different story, and many financial services have already embraced cloud computing for these noncore activities. > Closely related to access is the question of security. Financial services companies need to know not only that they will have access to data whenever they need it, but also that outsiders will be kept out. Some cloud computing vendors have had their servers hacked, a nightmare of the first order for an asset manager, and industry studies have shown this possibility is the biggest concern for financial services companies considering a move to the cloud. > Financial services companies are under heavy and growing regulatory, reporting and auditing burdens. Any cloud computing solutions they choose should be able to meet their regulatory obligations. In view of the complexity of the financial services industry and its products and practices, vendors without deep experience in the industry are unlikely to be able to do this. > So far there are no formally codified and universally accepted industry standards and best practices for cloud computing. That means clients must do their own homework before they contract with a vendor without being able to rely on the imprimatur of an official certifying body. Taken together, while they are certainly valid, these concerns are not reason enough to cause a prudent asset manager to shun the cloud. The benefits of a cloud computing environment are many simplicity, cost savings, flexibility and scalability and typically outweigh the potential downsides of security breaches and loss of control. Furthermore, as best practices and industry standards emerge over time, security and safety will become less of a concern. However, financial professionals making their first foray into cloud computing for their core functions need to be aware of the risks, and they should take care to choose a cloud vendor with a track record in financial services and experience with their particular security, reporting and regulatory requirements. Moving Forward While the hype around cloud computing has been so intense that a good measure of skepticism about it is healthy, there can be no doubt that the cloud is coming to financial services. First of all, unlike many next big things, this one makes solid economic and practical sense. The computing needs of asset managers are only likely to grow, and the cloud makes it possible to handle large and changing volumes of data effectively and economically. Financial professionals need to assess their needs, inform themselves about the options, identify the right vendors, and proceed prudently. But move they must or risk falling ever further behind in the race for success. Firms that don t make the move or that migrate to the cloud too slowly will soon find themselves at a competitive (and financial) disadvantage to their more nimble competitors.

11 11 Cloud Computing Lexicon: What's in a Name? ASP: Application Service Provider A company that offers cloud computing services. BPaaS: Business Process as a Service Not strictly speaking a cloud computing concept, this usually means outsourcing an entire function computing, staffing, the works to a vendor. Collocation The use of servers or sometimes just physical space for servers maintained and rented out to clients by vendors. Distributed Computing Dividing a complex computing task into smaller pieces to be executed by multiple computers. Also called grid computing. Elasticity The ability of a cloud to handle greater or lesser computing loads on demand. Grid Computing Dividing a complex computing task into smaller pieces to be executed by multiple computers. Also called distributed computing. IaaS Infrastructure as a Service. A vendor sells access to data storage, networking and other services online to software developers. Intercloud A network of clouds in which excess computing demand may be shifted between clouds. It s a cloud of clouds in exactly the same way that the Internet is a network of networks. On Demand A contract with an IT vendor that allows the user to easily access computing resources whenever they are needed. Outsourcing Contracting with an outside specialist vendor for IT services, as is common in HR or other areas. Private Cloud An off-site server or servers used and maintained by one client exclusively. Public Cloud An arrangement in which multiple cloud computing clients use a single vendor-run, off-site server simultaneously. SaaS Software as a Service. The most common form of cloud computing, in which a vendor sells access to its software via the web. The software runs on the vendor s servers and the user is charged on a pay-as-you-go basis. Server A central computer to which others are connected via a network. Virtualization Using software to make a single server operate as several virtual servers to provide separate computing resources to multiple users simultaneously.

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